4 Ways to Finance Home Improvement Projects

Whether home improvements are wanted or needed, there’s a way to fund them.

For many homeowners, the next remodeling or improvement project is always in the back of their minds. They might be inspired by ideas seen on Facebook or the “Today’s Homeowner” television show.

At any rate, improving your home is usually a good idea in the long run. Not only does it often improve the home value, but it’s a way to put your stamp on the home and truly make it yours.

However, improvement projects can also be expensive. While some homeowners save up over time to be able to afford them, others find themselves needing — or wanting — to start earlier.

Sometimes, improvements are done out of necessity after a kitchen fire or water damage. Others are done to help an expanding family find more room. Maybe you just got inspired and can’t wait to get started!

Here are ways to find funding for your project—without having to wait to save money for it.

1. Open a Credit Card with an Introductory Deal

If you don’t have cash, one option you do have is to look into a credit card. Don’t just grab whatever rewards card you can find; do some research. There are two types of cards to consider: a card with a high signup bonus or one with an introductory rate offer.

There are credit cards that offer a 0 percent interest rate over the first six to 18 months of opening an account. You could open this card and cover the expenses for a home improvement project. If the balance is paid off within the intro period, then you can save on interest.

Additionally, homeowners can try taking advantage of a card with a high signup bonus or introductory offer. These cards usually offer high cash-back rewards for reaching a spending threshold over the first three months. If you have a project cost that exceeds that threshold, then you can basically get a discount by taking advantage of the introductory offer.

Of course, exercise caution with credit cards. A low-rate or high-bonus credit card sounds like a great deal, but don’t forget about the obligation to pay off the balance.

2. Use Your Home Equity

A home equity loan or line of credit is often the go-to solution when it comes to funding home improvements. If you use a HELOC or equity loan to pay for repairs and improvement, it’s often tax deductible, making it highly attractive for many homeowners.

In order to be eligible for this product, you’ll need to have the necessary equity in your home. Most lenders won’t go above 80%, meaning that they won’t allow you to use more than 80% of your home’s value in a loan. This could limit your creativity, but it’ll also help keep you from going upside-down on your home if housing market prices fall.

Using a line of credit lets you reuse your credit over and over; as you use the line of credit, you can pay part of it off, or all of it, just like a credit card.

During the draw period, you can continue to withdraw funds and make minimum payments. After that period is over, usually about 10 years, the line of credit changes to act more like a loan; no further withdrawals are allowed, and you’ll need to make regular payments.

The drawback of any home equity product is that it’s secured by your home; if you cannot make the payments, you could go into foreclosure.

3. Take Out a Personal Loan

If you have good credit, a personal loan may be an excellent option; they have become a popular option for big-ticket expenses such as home improvement.

There are two main types of personal loans: secured and unsecured. A secured personal loan requires collateral, but anyone lacking in assets may not be able to take advantage of this. However, most personal loans are actually unsecured, so you don’t need to bring your assets to the table.

Personal loans are characterized by higher interest rates for a couple of reasons. First, repayment terms are usually short – about three to five years. A shorter repayment term means higher interest rates. Additionally, many personal loan offers are unsecured, which means banks and credit unions extensively review income and credit history in an application. This can make personal loans more expensive for applicants with lacking credit or poor income.

A personal loan can be a good option, but there are caveats. Someone without any assets or good credit may be on the hook for a high-interest loan – not an ideal scenario for reducing project expenses. While a short repayment term may be ideal for some applicants, this obligation may not be suitable for some people.

4. Cash-Out Refinance

Another option for financing your home improvement project is a cash-out refinance. Like a home equity loan or line of credit, a refinance is secured by your home. It differs from them, however, in that you take out a new first mortgage that pays off the old one and offers you cash back based upon your equity, rather than taking out a second, separate loan that you’ll have to pay back in addition to your existing mortgage.

If your home is worth $300,000, for instance, and you still owe $220,000 on it, you can refinance that $220,000 but also take out the equity up to 80% of your home’s value, or $240,000. That gives you a cash out of $20,000 for your project.

The key to understanding which financing option is best for you is first understanding what your financial situation is, how much money you need, and what you can realistically afford to pay per month. With a little research — and a talk with your bank or credit union — you can decide on the best course of action and get your project underway.

By Andrew from LendEDU, a consumer education website. Andrew has gained a bit of experience in DIY home improvements by helping his sister with her improvements on a new house.

Backed by his 40-year remodeling career, Danny served as the home improvement expert for CBS’s The Early Show and The Weather Channel for more than a decade. His extensive hands-on experience and understanding of the industry make him the go-to source for all things having to do with the home – from advice on simple repairs, to complete remodels, to helping homeowners prepare their homes for extreme weather and seasons.